Monday, 8 November 2010

We have patent trolls and copyright trolls (especially in jurisdictions that provide for statutory damages). Now it is the turn of the trademark troll.

Consider the following situation. You file a trademark application on behalf of a client (when you filed, you remember well the client's instructions--"no need to do a clearance search prior to filing"). The jurisdiction in which the appliction has been filed only examines the mark on absolute grounds, i.e. whether or not the mark is too descriptive to be registrable. The mark sails through examination and it is published for opposition.

Days before the end of the opposition period, you receive a Notice of Opposition. You examine the grounds for the opposition and you conclude that the Opponent has a strong, indeed a very strong, case. One year has passed since the application was filed. During that time, your client has been using the mark on the branded product bearing the mark, supported by substantial marketing and advertising. The client is pleased with the commercial results of the product and believes that the mark has acquired brand equity. The opponent is not in the business of using the mark, but rather warehouses registrations and applications and then waits for an opposition opportunity -- such as yours.

The question is how to advise my client. Having particular regard to the inevitable "compare and contrast" with the patent troll situation, here are my first thoughts:

1. The operative assumption is that the opponent's basic goal is to extract payment in exchange for agreement to withdraw the opposition and to agree to allow the applicant to use the mark in an unimpeded fashion.

2. That said, the circumstances described above only involve the right of registration. Even if the applicant fails to register the mark, any challenge by the opponent to use of the mark must be separately brought in a civil action. In most jurisdictions, it is relatively inexpensive to maintain an opposition proceeding. To the contrary, an infringement action will likely be substantially more costly (for both parties). Unless the jurisdiction allows an award of costs, each party will have to bear its own costs with no likelihood of recovery.

3. The threat of an injunction, if an infringment action should ultimately be filed, may well less potent than in the patent troll situation (even after the "eBay" case in the U.S.). In principle, there are an infinite number of words and signs that one can choose as a mark for a given product. Unlike a patent suit, where there may not be any viable alternative if the defendant is enjoined from using the invention, an injunction regarding trademark use merely requires the defendant to choose another mark. In most situations, this will not mean that end of the product.

All of this brings me back to situation described above. I assume that neither my client nor the opponent wishes to reach the litigation stage. My client wants to continue to use the mark while the opponent seeks payment of a sum of money. However, the opponent also knows that if my client chooses to withdraw the application, the value of the mark for my client (and hence any payment to the opponent) will become zero. The challenge, therefore, is for the parties to find a way of reaching an agreement, especially where the threat of a zero payment hangs credibly over the head of the opponent.

In particular, the sum cannot exceed the amount that the applicant will reasonably be required to expend, should it choose to withdraw the application and to adopt a new mark. This is the rub -- how can we come up with a rough metric to quantify this amount? The following comes to mind:

(i) The easier part is to calculate how much has been directly spent on creating, protecting and promoting the mark. (ii) But what about indirect costs and the amount of the brand equity, if any, that might be lost if the marked is discontinued? (iii) And what about the time value of money, as the negotiations trundle forward against the backdrop of continuing costs, both direct and indirect, in connection with the use of the mark?

At least with respect to the applicant, the information that might enable it to come up with an amount that is presumably within its knowledge and control. What about the troll? True, the troll should be able to quantify its expected costs, both for the opposition and any infringement action. But unlike its patent cousin, this troll must always be fearful of the "nuclear option" of withdrawal and presumably ascribe a discounted value to reflect this risk. All of this would seem to make the trademark troll situation more uncertain than its patent counterpart.

5 comments:

Guy
said...

To file a trade mark application without a search is madness. If the client insists he should be given a written warning of the consequences. In my experience SME's are liable to use a trade mark without a search or attempt to register. It is usually about 18 months until a registered owner strikes; it can be very expensive.

Which is about the same as "cybersquatting": nothing you cannot solve with a proper search for trademarks already registered, I would say.

And which is not new: Volkswagen had this very same issue when the launched the Touareg car. Which issue was amicably solved by handing over the TM in return for a Touareg car (may be a little different, long time ago).

If in your scenario, as you say below, “ The opponent is not in the business of using the mark, but rather warehouses registrations and applications and then waits for an opposition opportunity -- such as yours” – then the answer is, if the registration on which the opposition is based is a UK registration ( or a UK designation of an International registration) s.3(6) of the Trade Marks Act 1994 – “ a trade mark shall not be registered if or to the extent that the application is made in bad faith”. “bad faith” encompasses quite a few situations; the one which helps your client is that there needs to be a genuine intention to use the mark on the day the application for registration for it was filed. ( this is why the application form for a UK mark requires the applicant, at part 13, to declare that he has such an intention).

If your opponent is in the business of solely warehousing registrations of trade marks, then the registration on which he based his opposition has very questionable validity. Consequently, if the opponent’s goal is to extract money from the client, then there is no need for the client to feel that he has to pay the opponent what the opponent is demanding: what the client can do instead is apply for invalidation of the registration on which the opponent has based his opposition; if you do so early enough after the opposition has been filed, the Office will allow both proceedings – invalidity and opposition - to be “consolidated” into one proceeding, thus saving costs.

If the opponent does not then back down – and I would be surprised if he did not back down, if he is a warehouser, because warehousers have no interest in defending their registrations once they are attacked - and the proceedings get as far as the evidence stages, then the evidence is not that difficult or expensive to do – all that you would need is a list of trade mark registrations owned by the opponent, and a report from a business investigator or an information scientist showing that the opponent has never traded in any of the goods or services covered by any of these registrations. This should be enough to infer that the opponent had no intention to use his mark on the day he applied for registration of it.

Invalidity/opposition proceedings can take a few years before they get to the stage when the Office will make a decision. But, the questionable validity of the opponent’s registration means that the client does have quite a strong bargaining position with the opponent, which in turn puts a ceiling on the amount on the money the opponent can demand – he could offer to buy the registration on which the opposition is based for no more than it would cost to apply for invalidity of that registration, which would be no more than £1000.

The need for an intention to use does not, unfortunately, apply to CTM registrations ( this is the TRILLIUM decision. ) But there are other ways in which a CTM registration can be challenged.

And for both CTMs and UK ( either on the national domestic register or the international register), there is the provision for putting the opponent to proof of use of the registration on which he has based his opposition, if that registration is more than five years old at the time the mark being opposed was published for opposition.

So, no, I do not share your view that the trademark troll situation is more uncertain than its patent counterpart.

The question of trademark troll you describe is a very interesting. Unfortunately this practice is gaining speed in recent years.

Patent trolls earn hundreds of millions annually as their only business is to acquire patents and to file lawsuits. The situation with trademark troll is similar, although in my opinion it is different than patent trolls. In the patent the benefits resulting from the conduct of litigation and outside legal agreements can generate huge sums.

I'm not sure that in the situation with the trademark troll this is possible at the same rates.If the applicant of the mark has used it he may lose in the event that it should stop using the mark. But changing a brand to another is considerably cheaper than the change of one technology to another.

The issue of determining the amount which seeks trademark troll is quite complicated.Trade mark applicant must carefully assess the situation. If he had begun seriously to use the mark it should make calculation of costs to date and possible losses if it stops using the mark. In the calculation may be included:- The cost of application of the mark;- Marketing costs;- Cost of compensations for contractors if they have a claim in respect of stopping the use of the brand- agreements with shops, retail chains and others.- The cost of introducing a new brand;and others.

Overall the council which can be given in such situations is: Every company must have an IP policy that protects it significantly from such unpleasant possibilities.

If in your scenario, as you say below, “ The opponent is not in the business of using the mark, but rather warehouses registrations and applications and then waits for an opposition opportunity -- such as yours” – then the answer is, if the registration on which the opposition is based is a UK registration ( or a UK designation of an International registration) s.3(6) of the Trade Marks Act 1994 – “ a trade mark shall not be registered if or to the extent that the application is made in bad faith”. “bad faith” encompasses quite a few situations; the one which helps your client is that there needs to be a genuine intention to use the mark on the day the application for registration for it was filed. ( this is why the application form for a UK mark requires the applicant, at part 13, to declare that he has such an intention).

If your opponent is in the business of solely warehousing registrations of trade marks, then the registration on which he based his opposition has very questionable validity. Consequently, if the opponent’s goal is to extract money from the client, then there is no need for the client to feel that he has to pay the opponent what the opponent is demanding: what the client can do instead is apply for invalidation of the registration on which the opponent has based his opposition; if you do so early enough after the opposition has been filed, the Office will allow both proceedings – invalidity and opposition - to be “consolidated” into one proceeding, thus saving costs.

If the opponent does not then back down – and I would be surprised if he did not back down, if he is a warehouser, because warehousers have no interest in defending their registrations once they are attacked - and the proceedings get as far as the evidence stages, then the evidence is not that difficult or expensive to do – all that you would need is a list of trade mark registrations owned by the opponent, and a report from a business investigator or an information scientist showing that the opponent has never traded in any of the goods or services covered by any of these registrations. This should be enough to infer that the opponent had no intention to use his mark on the day he applied for registration of it.

Invalidity/opposition proceedings can take a few years before they get to the stage when the Office will make a decision. But, the questionable validity of the opponent’s registration means that the client does have quite a strong bargaining position with the opponent, which in turn puts a ceiling on the amount on the money the opponent can demand – he could offer to buy the registration on which the opposition is based for no more than it would cost to apply for invalidity of that registration, which would be no more than £1000.

The need for an intention to use does not, unfortunately, apply to CTM registrations ( this is the TRILLIUM decision. ) But there are other ways in which a CTM registration can be challenged.

And for both CTMs and UK ( either on the national domestic register or the international register), there is the provision for putting the opponent to proof of use of the registration on which he has based his opposition, if that registration is more than five years old at the time the mark being opposed was published for opposition.

So, no, I do not share your view that the trademark troll situation is more uncertain than its patent counterpart.